As a consequence of cannabis’ federal illegality, cannabis companies are generally locked out of the nation’s federal bankruptcy courts. Perkins Coie’s Cannabis industry group’s Tommy Tobin recently sat down with Billy Organek, a program fellow at the Harvard Law School Bankruptcy Project, to discuss the effects of current bankruptcy laws on cannabis companies in the United States.
Cannabis companies can run out of money, but they are generally unable to declare bankruptcy. While company leaders and investors still have options, these opportunities remain largely untested. Harvard’s Organek discussed several options, including:
- State-level receiverships running a distressed cannabis company while winding down its affairs.
- Out-of-court restructuring negotiations between the debtor and its creditors to attempt to reach resolution regarding amounts owed.
- Foreclosures to allow those with security interests in property to enforce their rights to that property.
As with so many aspects of cannabis law, there are countervailing pressures and untested solutions to novel problems. Of course, having smart, appropriate contracting on the front end is vital when working with cannabis companies, including provisions that will help mitigate risk in the absence of federal bankruptcy protections.